Case-weighted payment per hospital case

Converts a case weight into money by multiplying it by a base rate, the money paid per unit of weight, and by any adjustment factor for the hospital. In the Medicare inpatient prospective payment system, the base payment rate, with its labour-related share adjusted by the area wage index, is multiplied by the DRG relative weight. Summed over a hospital's cases, the payment equals its casemix multiplied by the base rate and the adjustment.

Signature

P_i = w_g * B * a_h
Inputs
InputsDefinitionUnit
w_gWeight of the group g to which case i is assignedratio
BBase rate or conversion rate, the money paid for one unit of weightcurrency per unit of weight
a_hAdjustment factor for hospital h, for example for local input costs; equal to 1 when no adjustment appliesratio
Output
P_iPayment for case i before add-on or outlier paymentscurrency per case

Function

Case weight derivation, case-weighted payment and casemix cost comparison function

Maps the mean costs of patient classification groups, such as diagnosis-related groups (DRGs), to relative case weights, and uses the weights to price hospital cases and to compare hospital costs for a given casemix. The records follow the notation of the Case Weight article, where w_g is the weight of group g and c_bar the mean cost per case across all groups, so a weight of 1 marks a group whose cases cost the same as the average case.

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Implementations

  • Excel

    Case payment from weight, base rate and adjustment

    Excel multiplies the named cells holding the case weight, the base rate and the hospital adjustment factor, returning the payment in a cell named CasePayment.

    =CaseWeight*BaseRate*HospitalAdj

Assumptions

  • Base rate set on the same scale as the case weights

    The base rate belongs to the same weight scale and year as the weights, so that a case with a weight of 1 at a hospital with no adjustment is paid the base rate. The European Observatory study notes that all countries using relative weights multiply them by a base rate.

  • Add-on and outlier payments outside the case payment formula

    The formula gives the basic payment for a case. Medicare's add-ons for teaching hospitals and hospitals serving many low-income patients, outlier payments for unusually costly cases and England's top-up payments for specialised providers are added separately, so the formula alone does not give total revenue.

Worked examples

  • Relative weight of 1.95 at a conversion rate of EUR 2,000

    The European Observatory study's hypothetical example multiplies a relative weight of 1.95 by a conversion rate of EUR 2,000, giving a payment of EUR 3,900 with no hospital adjustment.

    w_g = 1.95; B = 2000; a_h = 1; P_i = 3900
  • Relative weight of 1.95 with a hospital adjustment of 1.05

    The same case at a hospital with an adjustment factor of 1.05 is paid EUR 4,095, computed here for illustration.

    w_g = 1.95; B = 2000; a_h = 1.05; P_i = 4095
  • Group B case paid at the case weight article's base rate

    At the article's illustrative base rate of £4,000, a case in group B with a weight of 1.25 is paid £5,000, the group's mean cost in the costing sample (computed here for illustration).

    w_g = 1.25; B = 4000; a_h = 1; P_i = 5000

Common errors

  • Reading a case payment as the resource cost of an admission

    A case payment is a payer's price, moved by stabilisation caps, efficiency factors and add-ons. NHS England states that its prices are calculated on the basis of average costs (NHS England 2026). Average cost per case can differ markedly from the marginal cost of the cases a technology adds or avoids, so a payment rate suits a budget impact analysis better than a measure of opportunity cost.

Sources

  • DRG weight and monetary conversion example

    Busse R, Geissler A, Quentin W, Wiley M, editors. Diagnosis-Related Groups in Europe: Moving towards transparency, efficiency and quality in hospitals. Maidenhead: Open University Press, European Observatory on Health Systems and Policies Series; 2011. Chapter 3 (Quentin et al.), Table 3.1, p. 29: a relative weight of 1.95 at EUR 2,000 gives EUR 3,900; Chapter 6 (Cots et al.), p. 79: countries using relative weights multiply them by a base rate.

    View source →

  • Medicare base payment rate multiplied by the DRG relative weight

    Centers for Medicare & Medicaid Services. Acute Inpatient PPS. Baltimore, MD: CMS; accessed 2 October 2026. The base payment rate, with its labour-related share adjusted by the wage index, is multiplied by the DRG relative weight, and add-on and outlier payments follow.

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  • NHS Payment Scheme prices from average costs and specialised top-up payments

    NHS England. 2026/27 NHS Payment Scheme. London: NHS England; published 26 March 2026. Section 8.3, PSS top-up payments: prices are calculated on the basis of average costs, and money top-sliced from unit prices is reallocated to eligible providers of specialised services as top-up payments, made only for inpatient care where prices are used. Read at the Internet Archive copy of 17 April 2026: https://web.archive.org/web/20260417184451/https://www.england.nhs.uk/long-read/2026-27-nhs-payment-scheme/.

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